Three Steps Around Personal Misconduct

by Matt Kelly on March 16th, 2018

Three Steps Around Personal Misconduct

Ethics and compliance officers might feel a bit exhausted from the seemingly endless series of sexual misconduct scandals gripping Corporate America these days. After all, the allegations all follow a predictable pattern.

A powerful executive takes liberties with younger, less powerful female employees. Investigations happen, but don’t result in discipline against the offenders. Other executives work to neutralize the employees making allegations, rather than the person causing the allegations in the first place.

Sound familiar?

That narrative fits at least seven sexual misconduct scandals that have roiled Corporate America within the last 18 months. First was Uber, which erupted into the public conversation in February 2017. Most recent are the Dallas Mavericks, rocked by misconduct allegations still unfolding today. In between we’ve seen a host of other examples, from Fox News to the Today Show to Wynn Resorts to the Weinstein Co.

Bringing these tales of misconduct to light has been hugely helpful to Corporate America. They are forcing senior executives to do some much-needed reflection about corporate culture, leadership, and accountability.

Still, the misconduct itself fits a pattern. So what is that pattern, exactly? And how can compliance officers instill business practices to break it?

The Three Steps to Misconduct

First, these organizations have unchecked senior executives — charismatic figures who can dazzle peers and superiors, which leaves them opportunity to abuse subordinates. The best way to prevent that is for the board to establish strong governing structures around senior executives. For example, the company could adopt policies where personal misconduct automatically triggers extra oversight or discipline. Without those structural checks, arrogance festers and breeds more trouble.

Second, the organizations have flawed reporting mechanisms that don’t send allegations of misconduct to people empowered to respond to them. The cases we’ve seen in the last year, for example, routed complaints to HR or legal. But when HR and legal report to the CEO, the company can’t investigate allegations against the CEO effectively. You end up with those corporate functions protecting superstar senior executives rather than rooting out misconduct. This is why an independent chief ethics and compliance officer is so important.

Third, the organizations allow a culture of protection to take root. This results from the first two mistakes. When a management function like HR or legal protects senior executives rather than holds them accountable, operations executives see that behavior. They adopt it. That’s how you get an assistant vice president yelling at his subordinates when they try to speak up about the CEO being a handsy jerk.

It’s About Fundamentals

Most interesting to me is that these three mistakes can apply just as well to other types of senior-level misconduct: financial fraud, insider trading, collusion, conflicts of interest. We could talk about sexual misconduct at the Dallas Mavericks, conflicts of interest at FIFA, or any number of governance mistakes at Uber. They all involved senior members of the organization acting recklessly because they could; because the organization didn’t design checks against bad behavior.

Thoughtful policies and procedures. Functions empowered to follow allegations wherever the facts take them. Commitment to accountability. Build your compliance function on those pillars, and it will withstand a lot of shocks.